Gold and the Austerity Meltdown
Regardless of how the politicians in Europe and the US want to spin it, Austerity is the operative economic word and will be until the Fed and the ECB see the whites of everyone’s eyes. And where will the white eyes be, in the eyes of the holders of gold as it plummets through the summer 2011 lows and goes down to test the levels before QE2, around the $ 1200 an ounce level of mid 2010.
In listening to recent forecasts by Wall Street analysts it would seem a consensus feeling is in a Christmas rally in stocks (basis the S&P 500) to either the 1330 or the 1400 level. To me this looks less and less likely. Economic and employment indicators are improving a little, however in reading the tea leaves it looks to me like a muted but successful compromise will come out of the Super Committee with various cuts to the deficit plus the tax rates for the high end will go back to pre-Bush levels. With this, a subdued tone will take over the funny money crowd and the markets with the dollar being the number one beneficiary.
Just to review where our thoughts are on the markets, the macro trends for most stocks and commodities topped in May of this year and are pointed lower. Exceptions at this moment are ETF’s TLT (bonds), FXY (yen), and GLD (gold). The macro trend for the dollar ETF, UUP is turning up and as mentioned above we expect the gold macro to turn down.